Photo source: Corporate Finance Institute
In a recent move, the Inland Revenue Department has doubled the size of its team dedicated to pursuing overdue student loan debts from borrowers living overseas and is strengthening legal actions in both New Zealand and Australia.
This initiative comes in response to the alarming growth of overdue student loan debt, which has reached $2.37 billion, with $2.2 billion of that amount owed by overseas borrowers, predominantly based in Australia.
Meanwhile, only 29% of overseas student loan borrowers have met their repayment obligations over the past year. This low compliance rate highlights the challenges encountered by the IRD in managing and collecting debts from borrowers who are not residing in the country.
Inland Revenue has received $116 million in this year’s budget to enhance compliance and enforcement efforts, with a portion of that funding specifically allocated for addressing overdue student loan debt.
The remaining funds will be utilised across various sectors of the tax system, including cryptocurrency regulation, trust compliance, tackling the hidden economy, and combating organised crime.
According to Andrew Stott, marketing and communications group manager of IRD, young people heading overseas for work or study may not realise that their student loan debt continues to accrue interest while they are abroad. This lack of awareness can lead to significant financial consequences, potentially resulting in a poor track record of managing debt. Nonetheless, the majority of the debt is held by individuals in their 40s and 50s who have yet to repay the IRD.
Debt collection agencies in the UK and Australia have been instrumental in locating certain individuals. In the first quarter of this year, approximately 7,000 names were forwarded to an Australian debt agency, resulting in around 1,000 individuals beginning to repay some or all of their debts.
IRD is also collaborating with the Australian tax office to obtain contact information for residents in Australia.
The primary focus is on establishing contact and facilitating negotiations; once communication is established, the IRD typically achieves favourable resolutions. In cases deemed “the worst,” the IRD may resort to legal action to facilitate wage deductions from individuals.